Water, Water, Everywhere Nor Any Drop to Drink

Water is the great-granddaddy of commodities. While the world is experiencing a largely supply induced commodity collapse, the most important commodity of all is slowly disappearing in many countries. This may at first seem to be a misleading statement – 2/3’s of the Earth’s surface is covered in water and water cannot ever “disappear”, it merely moves into a different stage of the water cycle. However the stuff that human beings need, fresh water, is rapidly becoming a huge problem. Population growth, climate change and inefficient provision are the prime culprits.

For instance, the problem of water supply in northern China arrives on the back of the worst drought in 60 years. This is not a sudden crisis neither – the problem has been building momentum for years as water-intensive industries in the region have dried up over 50% of the country’s 50 000 significant rivers. The reason? The price. Economics is the study of allocating scarce resources, resting almost squarely on the Law of Supply and Demand. The price of water in some of China’s driest areas is too cheap, resulting in wastage and a failure to account for the full price. Government also encourages investment in these areas for industries that utilise a lot of water, failing to account for the supply of water available, intensifying the drought periods.

To try and solve the issue of a dry north, the Chinese government embarked upon an engineering mega-project to transfer water from the wetter south to the north. By the end of 2014, $79 billion had been spent on the project. Many criticise the project because it does not address the issue of inefficient usage in the north, and may end up drying out rivers in the south.

Across the Pacific, California is in the midst of a 4-year-long drought. To manage the problem, California’s governor this year imposed restrictions on water use by ordering local water-supply utilities to deliver 25% less water this year. However, the state has not issued the same restrictions to farms, which provide over one third of the U.S’s vegetables and two thirds of its fruit and nuts. Californians are also getting involved, taking to Twitter to “#droughtshame” celebrities (the list includes Barbara Streisand) and citizens that continue to splash water on their lavish gardens.

Additional measures include curbing groundwater use, especially by farmers. However, lawsuits will be plentiful as farmers fight tooth and nail to sustain their livelihood that is supported by underground water that was hitherto considered private property.

Groundwater aside, it is clear that appropriate market forces need to be introduced to manage the use of this commodity, with some suggesting water-trading markets to enact optimal outcomes. Perhaps the future will include derivatives on water! Other potential solutions are to simply retrieve water from the ocean in a process called desalination. However, the technology is expensive, resulting in water that can cost almost double the price of conventionally procured water (in California at least).

Much closer to home, South Africa is dealing with its own water shortage. The government recently declared five of our nine provinces an agricultural drought disaster. This has dire consequences for South Africa’s food security as public finances are already stretched thin; if we reach the stage where we need to import essential food products, it will speed the decline of our national financial health and ultimately, our credit rating.

The message is clear – market forces need to be appropriately applied to water provision to ensure efficient use and technology needs to catch up to make solutions to water crises (like desalination) a less costly exercise. It’s time we start treating water exactly like the fundamental commodity it is.